Setback leads to comeback for Yum!

LOUISVILLE, Ky. — Yum! Brands’ US sales last year were saved by the Bell.

Admitting “catch-up work” is needed for KFC and Pizza Hut in the United States, the company pins its profit targets on Taco Bell, which has consistently delivered same-store sales growth while its sister brands have stumbled.

“We clearly have some catch-up work to do in the United States versus the competition for both Pizza Hut and KFC and intend to make significant progress in 2014,” said David Novak, chairman and CEO of Yum! Brands, during a Feb. 4 earnings call with financial analysts. “All in all, the brand momentum at Taco Bell, net new unit openings and the fact our refranchising program has been largely completed, puts us on a path for consistent growth in the United States.”

Representing two-thirds of Yum!’s profit as a result of refranchising, Taco Bell delivered same-store sales growth of 5 percent during the quarter and 1 percent for the year, offsetting declines for KFC and Pizza Hut.
But that performance wasn’t the only disappointment of Yum!’s year.

“If you’ve followed us over the years, you know one of the things we’re most proud of as a company is our ability to drive what we call dynasty-like performance, which is generating at least 10 percent growth in earnings per share year after year,” Novak said. “As you know, when a company does that, its stock price takes care of itself. We did that for 11 consecutive years until 2013. So 2013 was, frankly, a very humbling year.”

Now positioned for a comeback, Yum! is driving aggressive plans to rebuild its business and grow earnings per share by at least 20 percent in 2014. While much of the work is focused in China, where profits have plummeted over bad press and avian influenza concerns, the company has taken significant steps to overhaul its whole system.

As of Jan. 1, 2014, Yum! combined its Yum! Restaurants International and the US divisions into the three global brand divisions: KFC, Pizza Hut and Taco Bell. China and India will remain separate divisions, based on what the company has identified as strategic importance and growth potential.

“This new structure is designed to drive greater brand focus and lead to even more aggressive global growth,” Novak said. “We believe having 100 percent focused brand teams will enable us to more aggressively accelerate growth in a way that generates higher returns and enhances shareholder value.”

International expansion figures largely into the company’s strategy, with a particular emphasis on India and other emerging markets, but domestically Yum! is focused on building brand momentum for KFC and Pizza Hut, the latter of which lagged competitors in same-store sales during the year.

“…we simply weren’t competitive enough on value,” Novak said.

The company will launch first-ever national advertising for WingStreet as part of efforts to improve its value proposition at the pizza chain.

Plans to drive continued growth at Taco Bell include core menu innovation and a new breakfast platform that will launch nationally during the first half of the year.

The company also plans to leverage its digital technology capabilities with the development and roll-out of a mobile ordering platform at Taco Bell later this year. With on-line ordering accounting for 40 percent of Pizza Hut’s delivery orders and $1 billion in total annual volume, Yum! said technology is among its highest priorities in differentiating experiences for its customers.

“…on the whole, we believe we’re stronger and better positioned to deliver on the three things that drive shareholder value in retails: driving new-unit development, building same-store sales growth and doing these in a way that generate high returns,” Novak said. “We recognize that 2014 needs to be a ‘show me, don’t tell me’ year, and we’re confident we have a strong bounce-back year ahead, growing EPS at least 20 percent, reestablishing our track record of consistently delivering double-digit EPS growth year after year after year.”

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